One of the biggest stories I ever covered began on Aug. 15, 1971, exactly 35 years ago, on a quiet Sunday in Washington. After spending the weekend at Camp David, Md., with his top advisers, President Nixon announced he was freezing all wages and prices for 90 days, with wage-price controls to follow.

It was a decision that I--and many others--would rank as one of the worst ever made by a sitting president. But we didn't know that at the time. After they got over the shock, most people thought it was just the right move. Nixon and members of his administration assured the public it would work. The press wasn't as skeptical as it should have been. Sound familiar?

It's a little scary to think back on the opinions of those times. The largest U.S. corporations went along with controls (and so advised the president), and so did labor. There was praise from foreign countries.

Arthur F. Burns, chairman of the Federal Reserve at the time, had actively urged Nixon to adopt wage-price controls. And why not? It kept him from having to be a tough Fed chairman who would have to bite the bullet and raise interest rates much higher--and then have to catch hell for it.

Democrats, more inclined toward a dramatic use of government to bring about results, raised no grand opposition, either. Suddenly, this free-market country had decided to put to government in charge and for what? Inflation had been creeping up, but it did not seem high enough to warrant such an action. Prices at the time were rising in the neighborhood of 5 percent.

There was a second major move by the president that day that endures to this day. Back then, the dollar's value was tied to the price of gold, and most other currencies were tied to the value of the dollar, as per an agreement after World War II. This kept currency values around the world very stable. But our balance of payments deficit caused other countries to claim payments in gold, and suddenly we were in danger of seeing all the gold in Fort Knox being emptied. Today, the world's currencies "float" according to their value in today's market. That was the good part of the plan.

With the wage-price controls on, Burns at the central bank kept monetary policy easy to lower the unemployment rate, and it was suspected by many that he wanted to help Nixon get re-elected by opening the monetary floodgates.

The controls put a lid on inflation for a time, but then became increasingly difficult to maintain before the lid blew off. Oil prices and farm prices began to rise even as the world economy boomed. Nixon tried a second freeze in June 1973, but it proved disastrous. In response, farmers drowned chickens and ranchers stopped shipping their cattle to market, noted Daniel Yergin and Joseph Stanislaw in a 1998 book. Nixon dismantled most of the controls in April 1974, four months before he resigned the presidency because of the Watergate scandal.

The controls soon led to double-digit inflation that hung around until most of the 1970s--until Jimmy Carter appointed Paul A. Volcker as chairman of the Federal Reserve to crack down. Volcker did, but unfortunately the high interest rates he put in place contributed to Carter's defeat in 1980 to Ronald Reagan.

When Reagan took over, he got rid of Carter's complex government controls on gasoline--controls that had contributed to long gasoline lines in the U.S. toward the end of the Carter presidency.

To economists, April 15, 1971 is a day that will live in infamy. We all learned a valuable lesson about wage-price controls, and that the price was very dear for the better part of a decade. The one positive impact is that our central bank learned to act swiftly when inflation showed the slightest sign of getting out of control--at least until Ben Bernanke took over as chairman. We don't yet how tough he is going to be.

Comments

Amazing that the "Republican President" put in wage and price controls.In defense of Nixon,who I find truly repellent,he at least tried to do something to curb inflation.

Now comes the facts,that President Carter was justly trying to fix the utter mess from the most corrupt admin in history.

Then old Ronny came along,and I do mean old,and just started building up the deficits that our children will suffer from.

Now,we have the second most corrupt admin in history,and their just giving away tax dollars like there's no tommorrow.

Posted by: john scanlon | Aug 15, 2006 8:42:17 AM&nbsp

Hey Scanlon, just curious, but who's the first most corrupt administration then? I think you might be intimating it's Nixon, who was grandly corrupt, no doubt. But if you look back on the Grant administration it really did take graft and extortion to a level that even Tricky Dick couldn't reach.

Yeah, yeah, Carter was trying to fix the inflation mess but he royally screwed it up, as Neikirk rightly states. The government price controls on gasoline "fix" he instituted was almost worse than the problem.

It IS amazing that a republican president instituted price controls and screwed up the free market like this. Nixon was like that, though. I've always said he was the most liberal republican to ever reach the oval office (including Roosevelt). He created the EPA, took the U.S. off the gold standard and always made gestures that flummoxed his party as much as the democrats.

Posted by: Bill | Aug 15, 2006 10:58:06 AM&nbsp

As Bill rightly points out, government corruption is nothing new. I'd like to add that calling The Bush2 adiministration "the second most corrupt administration in history" is a bit of a stretch. Besides Grant, Warren Harding also come to mind. I think if we really put our minds to it we could come up with a fair sized list before we get to Nixon and the Bushes.

But a different point comes to mind, and I think it's important to note it:
The example of US Grant should finally deflate the argument (currently espoused by flabby liberals, but also known to be used by conservatives)that any president's military experience is relevant to his ability as Chief Executive.

Let's bury that red herring, shall we?

Posted by: Juanito | Aug 15, 2006 12:22:22 PM&nbsp

Juanito,
You can bury that red herring all you want to.I'm a vet,I have a son in the Marines,in Iraq right now.You can't ignore Dubya,and Darth Cheneys history of running from a conflict(Vietnam)that they were afraid they might have to participate in.CHICKENHAWKS!!!!!!!!!!!!!!!!!!
They have NO BUSINESS "deciding" who's a patriot,and who's not.It's easy to fight a fake war,and act tough, when there is no chance that you or any of your family members will have to participate in it.In fact Dubya,Darth,and co. are getting rich off of the no bid contracts.
Swell guys guys we've got running this country huh Juanito?

Posted by: John E. | Aug 15, 2006 1:03:28 PM&nbsp

US Grant = Great soldier; Lousy president.

FDR = Not a soldier at all (in fact, a foppish mamma's boy); great president and wartime leader.

'Nuff said.

Posted by: Juanito | Aug 15, 2006 2:09:28 PM&nbsp

Juanito,
Those two didn't trump up fake reasons in order to invade a country,and then call the objectors unpatriotic.
Nuff said...

Posted by: John E. | Aug 15, 2006 2:33:20 PM&nbsp

I like how John E. is straining under the weight of argument to try to make this conversation somehow about Bush and baseless rhetoric.

I agree Juanito. Some other examples:

Reagan: Made how-to-fight movies during WWII and still brought down the Berlin Wall with tough policies and better negotiation.

Teddy Roosevelt: wasn't a soldier until his late 30s (and even then he was a soldier of privilege in a volunteer army of cowboys and football players) and spent all of about a month at war. His face is on Mount Rushmore.

Bill Clinton: Avoided the draft, but still presided over the best economy this country's ever seen.

'Nuff said.

Posted by: Bill | Aug 15, 2006 2:45:53 PM&nbsp

Bill,
Again,you miss the point.
These presidents DID NOT make up a phoney war,and then chide the objectors with being unAmerican,and unpatriotic.That's the difference Bill.
Nuff said...
Juanito...Peace...

Posted by: John E. | Aug 15, 2006 3:27:43 PM&nbsp

Bill,today is a day that will live in infamy.

You have admitted that Dick Nixon was a crook,and Bubba presided over the best economy ever.

I don't know what that trip to Phoenix did for you,but this new Bill is refreshing.

I knew when I looked into your soul that deep down there was "compassion".

Posted by: john scanlon | Aug 15, 2006 3:28:17 PM&nbsp

Hey John, strange what a little travel will do for you, eh? But seriously, with some major reservations I think anyone with more than a partisan perspective has to agree that Clinton was a very effective president who, principally, did a great job of keeping his hands off the economy and letting it work.

I might not like the man, personally, and find some of the campaigning done in his name detestable but you'll get no argument from me on his results. That's why so many republicans supported him against Dole. That and who would really get out of bed to vote for Bob Dole in that election?

History will remember Nixon as a paranoid crook because he was one. Some of the things he did in office, though (taking the nation off the gold standard, the SALT talks with the U.S.S.R., opening the U.S. to China, ending the Vietnam war) will be remembered as great achievements in a very difficult time. They'll never erase or overshadow the disgrace he brought to the office with Watergate, though. What's even more amazing is that the very personality traits (killer instinct, ambition, belief that everone was against him, an overwhelming need to be liked) that drove Nixon to make these grand gestures was also his downfall. Just my armchair psychologist thoughts.

Posted by: Bill | Aug 15, 2006 5:29:18 PM&nbsp

Bill,
As much as we disagree,I respect your opinion,seeing that you somewhat seem to be a moderate.
Richard M. Nixon actually had some outstanding accomplishments(China)during his time in office.
He was brought down for something(Watergate)that was far less serious than the crimes committed by George W.,and Dick Cheney.Putting all politics aside,I do think they will have their day of reckoning.Bill Clinton was brought up for impeachment because his success angered the republicans,period.Remember what Newt Gingrich did when the backgrounds of others were looked into?I think that is why the impeachment was unsuccessful.

Posted by: John E. | Aug 15, 2006 8:39:45 PM&nbsp

Nixon's price controls - Number One example of a FUBAR when gov't intervenes.

JohnScanlon - Get a south side clue. President Reagan inherited a damn mess of an economy that was screwed up by Nixon-Ford-Carter , especially Carter. Double-digit inflation, high unemployment, 20% mortgage rates. He cleaned up that mess and by the time he was done, lowered inflation to the manageable levels it is today. Reduced unempoloyment and lowered mortgage rates down into single digits. Yes deficts went up, but that was do to spending, not tax cuts. Before he lowered taxes, the highest personal incremental tax rate was 70%! In addition, he (along with Thatcher, Pope John Paul, and Lech Walesa) brought down Communism. As the 90's proved, deficits can be grown out of as long as gov't spending is brought under control.

President Clinton presided over the great economy of the 1990's. He was also in office when the Bulls won three championships.

The resaon he was able to preside over that economy was probably the Republican Revolution of 1994. If he had a dem congress for 8 years, that would have been one screwed up economy.

Bill and Juanito - Great Points.

JohnE. - Do some research and you will find the reasons for invading Iraq are not trumped up. There was a connection between al Qaeda and Iraq (such as training camps run by Sadaam's Intellegence Service) and we know that Iraq had chemical weapons. They used them in the 80's and 90's. Many leading democrats, inlcuding a former president and vice-president agreed.

Posted by: Terry | Aug 15, 2006 9:10:08 PM&nbsp

Slightly off subject, but a great article in today's WSJ - "Welcome to Club Fed". It states that the average federal civilian (non-military for you dems) employees earn $106,579 per year as compared to $53,289 per year for the private sector.

The next time you say federal spending is not out of control, think of this.

Posted by: Terry | Aug 15, 2006 9:22:55 PM&nbsp

Oh, yeah, I've said Nixon did accomplish some great things in office. I just think the taint of resignation will always overshadow his accomplishments in the history books.

John E. is totally right, that Watergate was far less serious than some of the things Bush has been accused of and some of the things Clinton was investigated for. Politics was an ugly business in 1974 and its gotten a lot uglier since then.

There's a good book about Nixon called "Alone in the White House" by JFK biographer Richard Reeves. Very interesting study of the man and the times. It's the only book I've read that got the material de-classifed in 1999 from Nixon's desk in the Old Executive Office Building. Apparently, Nixon would write these little pep talk notes to himself that said things like, and I forget the actual text but this was the gist: "Be likable, not a drinker, but fun, Nixon is fun to be around."

It just explains so much. The man was a complete introvert in an extrovert's business and always so uncomfortable around people, which naturally led to the atmosphere of secrecy that was his downfall.

It's hard to say how Clinton will be remembered in regard to his impeachment. The case was certainly politically motivated, which isn't to say it was without merit. Watergate was partially politically motivated. I think arrogance certainly played a role in the whole Lewinsky affair and that made him an easier target. He's said as much in his memoirs. And while it's true that l'affair Lewinsky didn't cause a war and no one got hurt, it's worth noting that Clinton still can't practice law because of the perjury charges. It's hard to imagine a CEO (Harry Stonecipher, anyone?) or any other leader in the corporate world escaping from such a scandal with his job intact today.

But I was praising his economic accomplishments which are pretty much unassailable.

Posted by: Bill | Aug 15, 2006 11:01:07 PM&nbsp

Terry, that figure is amazing. Unbelievable. I bet it's nigh impossible to get fired from those jobs, too, which means the tax payers get as little work as possible out of those fat salaries.

Posted by: Bill | Aug 15, 2006 11:03:15 PM&nbsp

Terry....How can you say that the reasons for the invasion of Iraq were not trumped up. Yes we knew that Sadaam had and used chemical weapons and had used them on the Kurds in the past...But you know very well that this was not enough to sway the country to invade unless we had the "A" bomb thrown into the mix. Terrorists? we could have picked a ton of countries other than Iraq for this. Sadamm...yes ...bad man, but again we could have choosen several leaders just as bad.
Our countries position in the Middle East has never been worse than it is today. Even the moderate arab countries no longer back us. Now that we have Iran in the mix, we are now powerless to do anything. We were led down the wrong path with trumped up intelligence and now we are stuck in it. Oh but we say we are furthering our cause with a Democracy in the Middle East.....ya..one that marches in the streets in numbers and chants death to America and Israel. Do you really think that arabs will ever view the world our way?

Posted by: bill r. | Aug 16, 2006 8:08:57 AM&nbsp

Terry the bean counter,How many times did Ronny Reagan raise taxes?

Posted by: john scanlon | Aug 16, 2006 8:40:27 AM&nbsp

Also bean counter,I'm thrilled you get your info from the WSJ,why not just call the Heritage Foundation.

Speaking of clueless and hyocritical,your party controls all branches of govt.,so tell me besides spending billions on Iraq,what steps have they proposed to cut "Club Fed".

As you continue to justify our failed presence in Iraq,I'm sure you've read in the WSJ that the neo nuts are now looking for an exit strategy,ie;splitting up Iraq into 3,cuttin and runnin because of the civil war,etc.

Last but not least,did Bubba coach"Da Bulls"?

Posted by: john scanlon | Aug 16, 2006 9:28:58 AM&nbsp

Bill,
If you read some books on serial killers,you will see that most provilers describe the same kind of personality that Nixon had as a starting point profile.
Makes you wonder what tricky Dick might have done if he didn't have politics

Posted by: John E. | Aug 16, 2006 12:48:04 PM&nbsp

C'mon John E., why try to make this all about politics? Just because Nixon was introverted doesn't mean he was any more likely to be a serial killer. This is the fallacy of the "low self esteem" approach to criminal psychology. Studies show that even more serial killers and other violent criminals have narcissistic personalities, the opposite of introversion and low self-esteem. Narcissists are EXTREMELY confident and extroverted. So much so that they believe the rules of society don't apply to them.
Now who does that sound like to you? Yep, William Jefferson Clinton.

Posted by: Bill | Aug 16, 2006 3:10:45 PM&nbsp

John, the Wall Street Journal is the second most highly-circulated newspaper (1.8 million) in the United States. USA Today is the first.

It was founded in 1889 by Charles Dow and Edward Jones. It has won the Pulitzer Prize 29 times and seems to be the only newspaper in America that's actually making money off the internet. No college dropouts hired by the WSJ have ever been fired for fabricating news stories.

Are you seriously going to try to argue that the WSJ is somehow an extremist rag?

Posted by: Bill | Aug 16, 2006 3:16:03 PM&nbsp

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